Falling rupee may further raise prices of petrol and diesel

New Delhi/Mumbai: Crude oil above $145? Not really, but in rupee terms, Indian refiners are paying a little more for oil than they did when crude was near its record five years ago as the rupee was stronger then, at Rs 44-45 against the dollar.

Oil has risen $5 in the past week while rupee has fallen further. What this means is that after the announcement of a steep hike in gas prices from April, petrol prices also need to rise - this month itself, unless the rupee or global crude price change course. Brent crude and the US benchmark WTI rose for the third straight day amid fears the unrest in Egypt may disrupt supplies from the Middle East even as protesters in Libya have shut down several oilfields.

Further, crude stocks in the United States, the world's biggest consumer, fell much more than expected.

Crude oil prices have risen to $105 per barrel from an average of about $100 in the second half of June, while the rupee is above Rs 60 against the dollar, up from an average of about Rs 59, building the case for another increase of Rs 3 per litre in the price of petrol, on top of the Rs 2.19 rise last week - if the exchange rate and oil prices remain at current levels until the middle of July.

The rupee fell for the third consecutive day on Wednesday, losing 55 paise to close at Rs 60.21 against the dollar, raising the import cost of crude oil. IndianOil Director (finance) PK Goyal said the industry was monitoring the situation, but did not indicate how much petrol prices may need to rise.

"In case the rupee continues to depreciate, we will have to revise petrol prices as we have no choice given that the rupee and international crude prices are inextricably linked with petrol prices in India, and for every rupee decline the industry collectively incurs a loss of Rs 8,000 crore. We are monitoring the situation and will take a call soon," he told ET.

Bharat Petroleum Corp's Chairman & MD RK Singh said the industry was facing a difficult situation. "It is too early to say definitively now as we review input costs and prices every 15 days. But if the rupee continues to depreciate over the next 7-10 days, we will have to revise petrol prices again. It will be difficult, as we have just raised prices twice. But we will have to do it," he told ET.

Industry officials said oil firms will take a big hit. "The exchange rate has completely ruined it. The borrowing of oil companies, which was in the range of Rs 1.5 lakh crore, would go up. Rupee's depreciation would also put strain on the working capital of oil companies," said an industry official, who did not want to be named.

In the case of diesel, the gap between the administered and market prices has widened despite the monthly increase of 50 paise per litre. "With the current rupee-dollar equation, oil companies would need to shell out around Rs 200-300 per barrel more than when global crude was at $145 per barrel," the official said.

State firms are allowed to charge market rates for petrol, but diesel is still state-controlled. Companies have been given the freedom to raise diesel prices by about 50 paise every month to make the move more acceptable to consumers. Oil firms lose heavily on sales of kerosene and cooking gas.